A.M. Best Co. has assigned financial strength ratings (FSR) of B+ (Good) and issuer credit ratings (ICR) of “bbb-” to Peach State Health Plan, Inc. (Smyrna, GA), Superior HealthPlan, Inc. (Austin, TX), Buckeye Community Health Plan, Inc. (Columbus, OH), Coordinated Care Corporation Indiana, Inc. (Indianapolis, IN), Managed Health Services Insurance Corporation (Milwaukee, WI), Total Carolina Care, Inc. (Columbia, SC) and Bankers Reserve Life Insurance Company of Wisconsin (Milwaukee, WI). A.M. Best also has assigned an FSR of B (Fair) and ICR of “bb” to University Health Plans, Inc. (Edison, NJ). All of these entities are insurance subsidiaries of Centene Corporation (Centene) (NYSE: CNC) (headquartered in St. Louis, MO). The outlook for these ratings is stable.
Concurrently, A.M. Best has downgraded the FSR to B++ (Good) from A- (Excellent) and ICR to “bbb” from “a-” of Celtic Insurance Company (Celtic) (Chicago, IL). The ratings have been removed from under review with negative implications and assigned a stable outlook. These ratings were placed under review in March 2008, following the announcement that Centene planned an acquisition of Celtic. The acquisition closed in July 2008.
Additionally, A.M. Best has assigned an ICR of “bb-” and debt rating of “bb-” to the $175 million 7.25% senior unsecured notes due 2014 of Centene. The outlook assigned to these ratings is stable.
The ratings are based on Centene’s multi-state market presence, consistent premium revenue growth, growing specialty service revenue and positive net income levels. Currently, Centene manages Medicaid contracts in nine states. Centene has consistently recorded premium revenue growth over the last five years, mainly driven by acquisitions, and has reported positive net income for four of the last five years on a consolidated basis. Centene also provides medical management services to its Medicaid managed care plans as well as to states that contract for those services directly. Revenue from these programs has grown to approximately 20% of total revenue. Through the acquisition of Celtic, Centene is now able to offer health insurance products in 49 states and the District of Columbia.
Offsetting rating factors include Centene’s revenue and net income dependence on state and federally funded Medicaid programs, which could experience pressure due to budget constraints and general economic conditions. Although Centene has made capital contributions in support of its subsidiaries, the risked-based capitalization of the Medicaid insurance subsidiaries is considered modest.
The downgrading of Celtic’s ratings reflects the company’s decline in capitalization since its acquisition by Centene. Since being acquired by Centene, $31 million was dividended out of Celtic in third quarter 2008, resulting in a substantially lower level of capitalization. Furthermore, given the current recession and declining premium revenues, significant premium growth is unlikely.
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Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.
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